Consider the two-period real model with investment. Suppose that there is a change in the representative...

 

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Consider the two-period real model with investment. Suppose that there is a change in the representative consumer's preferences because the MZ generation becomes dominant in the population. This implies that, all else equal, the consumer prefers more current leisure and less current consumption. (You can think it as an increase in y parameter in the previous problem.) Assume that the effects from less current consumption dominate the effects from more current leisure. a. Draw the diagram of the labor market, which shows the change in labor demand or/and labor supply curve in response to the change in preferences. b. Draw the diagram of the goods market, which shows the change in output demand or/and output supply curve in response to the change in preferences. c. Show how labor demand or/and labor supply curve shift in response to the change in the equilibrium real interest rate r determined in the good market. d. Find and explain the effects of this change on all current macro variables, including current output, employment, consumption, investment, the real wage and the real interest rate. e. Plot long-term trends of real output, employment, real consumption, real investment, real wage, and real interest rate in South Korea. Does this model explain data well with the emergence of the MZ generation as an important channel? Consider the two-period real model with investment. Suppose that there is a change in the representative consumer's preferences because the MZ generation becomes dominant in the population. This implies that, all else equal, the consumer prefers more current leisure and less current consumption. (You can think it as an increase in y parameter in the previous problem.) Assume that the effects from less current consumption dominate the effects from more current leisure. a. Draw the diagram of the labor market, which shows the change in labor demand or/and labor supply curve in response to the change in preferences. b. Draw the diagram of the goods market, which shows the change in output demand or/and output supply curve in response to the change in preferences. c. Show how labor demand or/and labor supply curve shift in response to the change in the equilibrium real interest rate r determined in the good market. d. Find and explain the effects of this change on all current macro variables, including current output, employment, consumption, investment, the real wage and the real interest rate. e. Plot long-term trends of real output, employment, real consumption, real investment, real wage, and real interest rate in South Korea. Does this model explain data well with the emergence of the MZ generation as an important channel?

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